Scepticism greets official line on dairy merger

By PHILIPPA STEVENSON

Merger experts are questioning the commitment of deadlocked Kiwi Dairies and New Zealand Dairy Group to their crucial alliance.

Kiwi chairman John Young and his Dairy Group counterpart, Henry Van Der Heyden, announced the breakdown of merger talks last week, citing an inability to agree to valuations of their companies.

But the reason does not wash with experienced merger advisers, seasoned business observers and some shareholders.

Professor Gerry Bowman, the head of Auckland University's accounting and finance department, said that while it was reasonably difficult to agree on figures in a merger "it shouldn't be so difficult as to cause the merger to fall over."

Common valuations could be produced by one consulting company, or two expert valuers could negotiate until they reached a credible point.

Professor Bowman said the stalemate suggested other issues were involved or that one or both of the sides was not all that keen on a deal anyway.

The personalities of those involved, from directors to managers, could have an impact, he said. "In many cases there are egos involved."

Brian Shaw, of PA Consulting, agreed that conflicting valuations would be only part of the breakdown story.

"There will be personal agenda issues to deal with [such as] where the directors in the new company will be drawn from, who survives and who doesn't. Inevitably there is two of everybody and you only need one," he said.

Roger Kerr, executive director of the Business Roundtable, described the negotiations as agonising and an example of the uncommercial nature of the industry in its present form.

He said the former Dairy Board chairman John Storey had identified the problem last year when he described the industry's operational style as taking turns and being fair.

The transaction was big, but deals of that size occurred around the world every day.

Professor Bowman doubted whether the impasse showed a lack of commercial expertise in the dairy industry.

"They could be commercially very astute and still not be able to come to an agreement," he said.

However, in a commercial situation, if valuations were the only point of difference, commercial people should be able to resolve that "which is why I'd be inclined to think it's probably not that simple."

Catherine Bull, spokeswoman for Farmers for Control, said farmers had called for independent verification of the company figures.

"If both Kiwi and Dairy Group are confident that their figures are the right figures, surely they would be more than happy to get them independently verified so we can move forward," she said.

Both companies have rejected an independent valuer. Mr Van Der Heyden said directors could not abdicate their responsibilities.

"We must respect the prerogative of the respective boards to reach a responsible decision on behalf of their shareholders," he said.

Dairy Group will have the last of 10 consultative meetings with shareholders tonight. Kiwi plans meetings on Wednesday and Thursday.